Must-Read: Martin Sandbu: Who should govern the euro?: “I have long argued against further centralisation of fiscal and structural policies, and proposed that some autonomy should instead be returned to the national level…

…First, policies must respond to the real differences in policy preferences and economic conditions between countries…. Second, we can learn from diversity…. Think of how influential Germany’s Hartz reforms or Denmark’s “flexicurity” model have been…. Third, even where there is a case for centralised decision making, it is politically dangerous to introduce it without broad popular support…. That some economic policy power should be re-devolved does not mean every country should do its own thing. There are often good reasons to harmonise policy, but this can usefully be done by pioneering “coalitions of the willing” that leave the door open for others to join later. We should add that there are some areas where it does make sense to pool sovereignty further—defining the corporate tax base jointly to avoid tax avoidance is the prime example….

This leaves the governance of “the euro” itself…. The ECB has much less control over the currency even in the most basic sense than it should. Most of the money supply… is not created by the central bank but by the (largely private) banking system as it lends…. The central bank has little grip on the growth—and, in a crisis, contraction—of the amount of money in the economy…. The money-creation process is particularly chaotic when banking regulation differs between countries…. It is necessary to shift powers to supervise, regulate and, in the last instance, resolve and restructure banks to the central level….

In fiscal and structural policy, governance should return autonomy to national governments. In monetary matters, centralisation should go much further and take over more powers not just from states, but from banks.